As you will see, I have changed the format of my monthly wrap up post in two ways. First, I am going to start including links to noteworthy decisions that I come across or are forwarded to me. Unfortunately, since neither I nor other bloggers writing in this space can cover everything, this will be a useful feature for those practicing in this area. Second, I am going to provide more commentary on some posts and cases, in the hope of creating further dialogue on many trade secret and non-compete issues. Given the hot button nature of some of these issues, I am going to share my thoughts, for whatever they are worth. Now, on to posts and links from the last month:

Legislative Developments

Last week, Democratic Senators Elizabeth Warren, Chris Murphy and Ron Wyden announced their intention to introduce the Workers Mobility Act (WMA) that would abolish non-competes throughout the United States. As many of you will recall, Senator Murphy previously introduced a similar bill, the Mobility and Opportunity for Vulnerability Employees Act (MOVE) but that bill stalled on the Senate floor. Russell Beck has a post with a link to the House and Senate bills, along with his well-reasoned concerns about the breadth and scope of the bills.

A blog post about legislation over non-competes wouldn’t be complete if there wasn’t some mention of some activity in Massachusetts. Key features of the latest bill under serious consideration would limit non-competes to 12 months (unless the employee stole trade secrets or breached his fiduciary duty) and finally adopt the UTSA. For more details, see Russell Beck’s post in his Fair Competition Blog.

Idaho (repealing its recent changes in 2016) and Utah (restricting their use against broadcasters) have recently amended their statutes addressing restrictive covenants. See Russell Beck again.

Colorado has modified its law affecting physician non-competes, carving out protections for physicians treating patients with rare genetic disorders to eliminate any interruption of care for those patients. Peter Greene summarizes the changes in Epstein Becker’s Trade Secrets & Employee Mobility Blog.

Here are the noteworthy trade secret and restrictive covenant posts from September and some of October:

Legislative Developments

Massachusetts is once again contemplating multiple bills regarding non-competes as well as a possible adoption of what appears to be the DTSA advises Russell Beck in his Fair Competition Blog. Russell and his team also have summaries of legislative activity in Maryland, Maine, Michigan, New York, Oregon, Pennsylvania, Washington and West Virginia, among others.

Here are the noteworthy trade secret, restrictive covenant and cybersecurity posts from the past month or so:

The Defend Trade Secrets Act

The U.S. District Court for the Eastern District of Texas has found that certain deer registry information qualified as a combination trade secret under the DTSA and Oklahoma’s version of the UTSA, as explained by Michael Weil and Tierra Piens for Orrick’s Trade Secrets Watch blog.

The issue of whether the DTSA applies to misappropriation that may have taken place prior to the DTSA’s enactment has been one of the more frequent areas of litigation under the DTSA. Jonathan Shapiro of Epstein Becker has a summary on these cases for Law360.

When moving to enforce a non-compete, the last thing a litigator wants to do is to stumble out of the gates and struggle over a profound legal issue that could delay consideration of that normally urgent request. A new and little-talked-about section of the Defend Trade Secrets Act (DTSA), however, has the potential to trip up employers seeking to enforce non-competes if they are not prepared to address this new entanglement.

There has been a significant amount of commentary about the DTSA and its new amendments since President Obama signed the DTSA into law on May 11, 2016. The “whistle-blower” immunity and ex parte seizure order, for example, have generated the most discussion to this point. However, the section of the DTSA that may have the greatest future impact on litigation under the DTSA is 18 U.S.C. §1839(3)(A)(i)(1)(I), which prohibits injunctions that “prevent a person from entering into an employment relationship.”

That new provision, which I will refer to as the “No-Ban-on-Employment” provision, was intended to curb, if not eliminate, the use of the inevitable disclosure doctrine under the DTSA. However, it may have a significant unintended consequence–namely, it may complicate employers’ efforts to enforce non-competes through temporary restraining orders (TRO), the key legal mechanism for non-compete disputes. For the reasons below, employers may want to reconsider invoking the DTSA when they want to enforce their non-competes because of the potential complications of this section’s language and instead opt to file them in state court, at least in the short-term. As the DTSA is likely to overtake the Uniform Trade Secret Act (UTSA) as the dominant statutory regime for trade secret law, this DTSA provision may well set another blow in motion to the viability of the non-compete as an effective tool to protect trade secrets.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Cases. Posts and Articles:

“Seagate Technology Recoups $630 Million Trade-Secrets Award” reportsBusiness Week. A Minnesota state appeals court has ruled that an arbitrator didn’t exceed his authority in awarding Seagate $525 million (and an additional $105 million in interest) in its trade secret dispute with Western Digital and a former Seagate employee. The arbitrator had found that some of the defendants’ evidence was fabricated regarding three of the trade secrets at issue and entered judgment against Western and the employee, Sining Mao, as a sanction.

“Even Preparing To Compete In Texas May Be Prohibited During A Non-Competition Covenant Period” advises Paul Freehling for Seyfarth Shaw’s Trading Secrets Blog. Rob Radcliff also has a post on this decision, “Anti-Planning Provisions – A New Non-Compete Weapon?” in his Smooth Transitions Blog.

And speaking of Texas, “Physician Noncompetition Agreements May Be Challenged More Often After Recent Texas Appellate Decision” warns Randy Bruchmiller for Seyfarth Shaw’s Trading Secrets Blog.

For the latest on non-compete legislation in Massachusetts, see “Massachusetts Noncompete Bill – Hearing Date” by Russell Beck in his Fair Competition Law Blog. Seyfarth Shaw’s Erik Weibust also has a post on the legislation.

The Southern District of New York has recently held “Marketing Concepts Are Not Trade Secrets” advises Eric Ostroff in his Trade Secrets Protection Blog.

“The next controversy in genetic testing: clinical data as trade secrets?” ask Robert Cook-Deegan, John M. Conley, James P Evans and Daniel Vorhaus for The European Journal of Human Genetics.

“The Business End Of The ‘Snowden Lessons'” reports Anne Sutton of Dentons and Erik Laykin of Duff & Phelps Corp. for Law360.

“More Answers To Your Noncompete Questions” provides Donna Ballman for her Screw You Guys, I am Going Home Blog.

“Texas Public Information Act: Shielding Your Company from the Open Records Sword” advises Jack Skaggs of Jackson Walker for JDSupra Law News.

In “Trade Secrets Whistleblower SLAPPed In Effort to Dismiss Lawsuit,” Ken Vanko reports on the recent dismissal of a whistleblower claim brought against Anhueser-Busch in his Legal Developments in Non-Competition Agreements Blog. For more on this case, see my post from the spring.

Cybersecurity Posts and Articles:

Looking to limit others from digitally eavesdropping you? Then check out “Digital Tools to Curb Snooping” by Somni Semgupta for The New York Times Bigs Blog.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Cases. Posts and Articles:

“Connecticut Governor Vetoes Noncompete Statute Passed By Legislature,” reports Daniel P. Hart for Seyfarth Shaw’s Trading Secrets Blog. Last Friday, Governor Dannel P. Malloy vetoed Public Act No. 13-309, sending the bill to the legislature with a letter noting his concerns about a lack of clarity in the final version of the bill. The bill essentially required employers to provide some reasonable notice of a non-compete to an employee or prospective employee. David Popick has a post for Epstein Becker’s Trade Secrets & Noncompete Blog, as does Russell Beck in his Fair Competition Blog.

“Smoking Gun or Blowing Smoke? Five Tips to Make Sure That Computer Forensic Evidence of Trade Secret Theft Is What You Think It Is,” advise Thomas Gray and Elizabeth McBride for Orrick’s Trade Secrets Watch.

“My Issue With PRATSA: The Rule of Lenity,” argues Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Computer Fraud & Abuse Act Articles, Cases and Posts:

As I briefly noted in my post last night, Congresswoman Zoe Lofgren (D-CA) and Senator Ron Wyden (R-OR) have introduced an amendment to the CFAA popularly known as “Aaron’s Law,” to narrow the CFAA, reportsWired. As readers of this blog know, Swartz had been charged under the CFAA after allegedly accessing the server of MIT to improperly download approximately 4.8 million academic journals; he committed suicide earlier this year after negotiations over his plea bargain broke down. The amendment would, among other things, define access without authorization and exclude online agreements, computer use policies and employment agreements from serving as a basis for a claim under the CFAA.

For more commentary on Aaron’s Law, see Russell Beck’s post in his Fair Competition Blog, Robert Milligan’s post for Seyfarth Shaw’s Trading Secrets Blog, and Jason Weinstein’s take for Steptoe’s Cyberblog.

The ITC and a Chinese court have come to opposite conclusions over the same basic trade secrets dispute, notes Orrick’s Trade Secrets Watch Blog. In, “Rubber Match? Resin Trade Secret Battle Results in a Multi-Jurisdictional Draw,” Mark P. Wine and Francis Cheever report that the ITC ruled in favor of American rubber manufacturer SI Group but that the Chinese court sided with Chinese manufacturer Sino Legend. For more on the ITC proceeding, see, “ITC judge rules for SI Group in intellectual property case,” in RubberNews.com.

Speaking of long-running trade secret imbroglios involving Chinese companies, “Chinese Wind-Turbine Maker Sinovel Charged With IP Theft,” reportsLaw360. The U.S. Attorney for Wisconsin has indicted Sinovel for the alleged theft of source code from American Superconductor’s computer system. The New York Times also has an article covering the indictment.

For those embroiled in a dispute over a forum selection clause in Georgia, “Atlantic Pacific Illustrates Impact of Georgia’s New Restrictive Covenants Law on Forum and Venue Selection Considerations,” advises Collin L. Freer for Berman Fink Van Horn’s Georgia Non-Compete and Trade Secret News Blog.

“U.S. District Judge in Massachusetts Declines to Enforce Noncompetes Because the Jobs of Two Employees ‘Materially Changed,’” advises Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.

For more on the new Connecticut non-compete statute, see “Non-Compete Legislation In Connecticut,” by David Popick for Epstein Becker’s Trade Secrets & Noncompete Blog, and, “Connecticut Law Restricts the Use of Non-Compete Agreements in Acquisitions and Mergers,” by Patricia Reilly, Matthew Curtin and Stephen Rosenberg for Littler’sUnfair Competition & Trade Secret Counsel Blog.

And while we are on the topic of trade secrets cases in Virginia, are you looking for a primer on the epic DuPont v. Kolon case? Then check out the superb post analyzing DuPont’s case by Eulonda Skyles and Michael Spillner for Orrick’s Trade Secrets Watch Blog.

“Ex-Advanced Micro Workers Can’t Shake Trade Secrets Suit,” reportsLaw360 and Bloomberg. For more on the AMD trade secrets dispute, see my post from last month on the recent preliminary injunction restraining those same employees from misappropriating AMD’s trade secrets.

In an initial skirmish that will inevitably lead to a lawsuit against the prosecutors in the Aaron Swartz CFAA case, “Judge Rejects Aaron Swartz’s Estate’s Request to Release Names of Individuals Involved in his Prosecution,” reports Hayes Hunt in the From the Sidebar Blog.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

In yet another non-compete case involving a physician, an Illinois appellate court has affirmed a trial court’s rejection of a covenant not to compete because the employer, a medical clinic, lacked a protectible interest in the patient base at issue. Jeff Glass reports on the case, Gastroenterology Consultants of the North Shore, S.C. v. Meiselman, M.D., et al., for SmithAmundsen’s Labor and Employment Law Update. According to Jeff, the following facts caused the court to side with the doctor: prior to forming the corporation, he practiced for a decade in the area; after forming the clinic, he continued treating these patients and personally billed them, as opposed to the clinic; the clinic did not help him with advertising or marketing; and finally, his compensation depended on his independent practice.

Jason Cornell of Fox Rothschild provides “A Comparison Of New York And Florida Law Governing Non-Compete Agreements” for Mondaq.

“Can My Employer Enforce A Noncompete When We Get Our Customers Through Bidding?” asks Donna Ballman in her Screw You Guys, I’m Going Home Blog.

A New York Federal “Court Finds Potential Liability For Sending Cease And Desist Letter reports Lauri Rasnick for Epstein Becker’s Trade Secrets & Noncompete Blog. For more on the risks of a claim of intentional interference from a cease and desist letter, see my post here.

In an interesting Op-Ed piece for The New York Times entitled “Elizabethan Cyberwar,” Jordan Chandler Hersch and Sam Adelsberg liken the current cyber conflict between China and the U.S. to the battle for the seas between Elizabethan England and Spain, arguing that China is sponsoring cyber-pirates to level the playing field with the U.S.

A blue-ribbon panel issued a report on Wednesday focusing on trade secret theft by China and urging a number of executive and legislative reforms, including enactment of a federal trade secrets statute and providing American companies with some limited right to “hack back” against those that launch cyberattacks against them. The report has already generated a fair amount of media coverage and is sure to spark further debate on what to do about international trade secret theft and cyberattacks (for more on the report, see this Op-Ed piece in The Washington Post, as well as these articles in Forbes, the BBC and PCWorld).

The Commission on the Theft of American Intellectual Property by The National Bureau of Asian Research (that’s a mouthful) assembled the report. The panel that authored the report includes high profile figures such as the former Ambassador to China (Jon M. Huntsman, Jr.), the former Chairman and CEO of Intel Corporation (Craig R. Barrett), the former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command (Retired Admiral Dennis C. Blair), and former U.S. Senator Slade Gorton from Washington state.

The Reasons for the Report: For those that have been following these issues, the report relies on many of the statistics and developments that are by now considered to be conventional wisdom or accepted as true: $300 billion estimated annual losses due to foreign trade secret and cybertheft, drag on U.S. GDP growth, American job losses, and corrosion of the incentives to innovate, among others.

However, unlike other reports and commissions, this one unambiguously singles out China “as the world’s largest source of IP theft” and quotes estimates that “China’s share of international IP theft” is “roughly 70%.” In this respect, the Commission differs substantially from other high profile reports — most notably, the Obama Administration’s Trade Secrets Initiative launched last February, which elected not to single out China (although that initiative did detail incident after incident of theft involving a China connection).

The report also addresses what it believes to be the root causes of this serious international problem, as well as the role of the Chinese government in allowing or promoting it. It posits that “much of this theft stems from the undirected, uncoordinated actions of Chinese citizens and entities who see within a permissive domestic legal environment an opportunity to advance with their own commercial interests. With rare penalties for offenders and large profits to be gained, Chinese businesses thrive on stolen technology.” However, the report does note that role of the Chinese government in some of these efforts, citing the recent Verizon risk report that found that “‘state-affiliated actors’ accounted for 19% of the 621 successful ‘breaches’ in the 47,000 attacks reported.”

The Commission’s Notable Recommendations: A number of short-term solutions are advocated to reorganize and finetune the federal executive branch’s focus and responsibility. However, it is the “medium-term solutions” proposal that I thought was the most noteworthy, which is the section that advocates for legislative and legal reforms.

In my view, the most important legislative reform proposed in the report is the very first one — the call for an amendment to the Economic Espionage Act (EEA) to provide for a private right of action to allow companies and businesses to sue for the theft of their trade secrets (readers of this blog already know that I have supported this effort). The report does not advocate a particular bill (such as the pending Protecting American Trade Secrets and Innovation Act) or particular remedy. Rather, the report focuses on the practical reasons that require that legislation: over-burdened federal prosecutors who lack the resources to pursue these actions under the EEA and the jurisdictional and evidentiary limitations of state court actions that may frustrate the ability of companies to protect their trade secrets overseas.

The Commission also recommends that the EEA be amended so that the Federal Circuit would serve as the Federal Court of Appeals for all federal trade secret actions, “since it serves as the appellate court for nearly all IP-related cases and thus has a high degree of competency on IP issues.” This is a good suggestion and would provide uniformity and clarity on any new statute as well as for future prosecutions under the EEA.

Finally, the Commission advocates two noteworthy but controversial cyber proposals. It supports the present Cyber Intelligence Sharing Protection Act (CISPA) that has passed the House of Representatives but faces opposition within the Senate and by the Obama Administration on privacy grounds.

The Commission also supports giving American companies the right to a some limited form of a “hack back” against foreign cyberattacks (for a fine and brief analysis of this provision, see the recent post of Steptoe’s Stewart Baker for The Volokh Conspiracy). This would likely require an amendment to the Computer Fraud and Abuse Act (CFAA), which as presently drafted, would expose American companies to civil claims or prosecution under the CFAA. (For a debate on the merits of allowing a hack back amendment, see the exchange between Stewart Baker (in favor) and Professor Orin Kerr (against) in The Volokh Conspiracy).

For those with the time, I would recommend reading the report which has a host of other comprehensive proposals that should be strongly and seriously considered by the Administration and Congress.

Post navigation

About this Blog

I’m a Columbus, Ohio-based attorney with a national legal practice in trade secret, non-compete, and emergency litigation. Thanks for visiting my blog. I invite you to join in the conversations here by leaving a comment or sending me an email at jmarsh@baileycav.com.

About Our Firm

Bailey Cavalieri LLC serves clients on a local, national and international level and maintains offices in Columbus and Dayton, Ohio. Primary practice areas include: directors and officers liability; bankruptcy; corporate and business; litigation; communications, energy and public utilities; employee benefits; labor and employment; estates, trusts and probate; health care; insurance; real estate; and tax. More information about the firm is available at www.baileycav.com.